Risk and regulatory work is now the fastest-growing consulting service in the UK, breaking the £500 million (~ $735 million) barrier for the first time. Helping today’s organizations comply with regulations, address cyber threats and manage the fall-out from major corporate scandals has led to double-digit growth in regulatory and risk consulting, which was up 11.8 percent to reach a total of £507 million (~ $745 million) last year.
Analysis from Source Global Research (Source) has also found that the ‘Big Four’ advisory firms are well situated to win work here as big names carry a lot of weight with the regulators. Indeed, this is one important reason why the ‘Big Four’ soundly dominate the risk consulting market.
Risk work has a much wider reach than just regulatory compliance, though. The Volkswagen emissions scandal, outrage over how some supermarkets treat their suppliers and fallout from the TalkTalk hacking episode have all helped to place reputational risk front of mind for many consulting clients.
The latest Source report notes that social media makes wrong moves in this area far costlier than they once were, as bad news can go viral in seconds.
The report also finds that retail cyber security is having a huge impact on risk consulting, with some consulting firms telling Source they hit 40 percent growth for this type of work during 2015. The work here is high-profile and tends to touch on all areas of an organization, as the last few years have proven that threats come from a variety of sources.
Fiona Czerniawska, director and founder of Source Global Research, said: “Consulting firms are eager to invest in risk and regulatory matters in order to take advantage of all the growth that’s available, but many of the skill sets required are deeply specialized and rather hard to come by. Firms may find this restrains their growth prospects more than any other factor.”
Heavily Regulated Industries Drive Growth
In particular, those industries with heavy regulations, such as financial services and pharmaceuticals, are driving much compliance work for consulting businesses.
A managing director from the financial services sector has explained to the Source report authors why the ‘Big Four’ firms are favored for helping with this compliance work.
“Sometimes,” said the managing director, “we’re engaging consultants as a result of a direct suggestion from the regulators, who might tell us that we need to go out and generate an independent view on X, Y or Z. We’ll definitely go to a name-brand firm in that instance so that we can show the regulator we’ve been responsive and engaged with the right people.”
However, the Source report does point out that, although regulation remains a big driver of consulting firm revenues in the financial services sector, it’s now starting to look a bit less of a cash cow. Source says that there’s less pure regulatory work around as regulation volumes start to fall and banks begin to emerge from the post-crisis compliance pressure that’s wiped out all hope of pursuing other types of projects.
In turn, this shift away from huge volumes of pure compliance work threatens to hit the ‘Big Four’ firms the hardest, but growth in cyber crime could help fill this gap.
Stephen Vinnicombe, UK CEO at Capco, explained: “Cyber crime changes the products and services we’ll offer. It’s not really a one-time consulting service. Rather, you need a repeat approach, simply because the risk doesn’t go away. It just evolves. You cannot apply a single solution and be confident that you’ve taken care of it for a while.”
This article was published in LP Magazine EU in 2015.